Analysts split on Westfield Retail’s prospects

Analysts expect some volatility when the new
Westfield Retail Trust
, and a lighter
Westfield Group
, start trading on Monday.

For a month, Westfield Group and the right to the new Westfield Retail, have traded as one.

On Monday, investors will have the chance to choose which stock they want and how to price it.

Westfield Group chairman
Frank Lowy
said restructure would “over time" create value for investors in both vehicles.

Westfield Group will be less asset heavy and, with a higher proportion of development and management revenue, should show higher growth.

Westfield Retail, with over $12 billion of Australian and New Zealand shopping centres in assets, will have lower growth but a higher yield and less volatility.

Most investors have gained stock in Westfield Retail through the 1 for 1 in specie distribution. The remaining $2 billion has been issued at $2.75 at an 11 per cent discount to asset backing and on a yield of about 6 per cent.

The main comparable is the
CFS Retail Property Trust
, which has traded weakly since the Westfield Retail announcement.

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Macquarie analyst Paul Chechin has a target of $3.20 but also noted that “while not mutually exclusive’’, better value could be found elsewhere, in stocks like CFS Retail and GPT Group.

Goldman Sachs noted that the need to finance Westfield Sydney in 2012 would crimp earnings growth, and the price.

Views are more mixed on outlook for Westfield Group.

At base level, the stock should be priced at around Friday’s trading, which was back over $12.50, less Westfield Retail’s $2.75.

CLSA analyst John Kim has upgraded his recommendation on Westfield Group to a “buy", with a target of $10.50.

“We view the ‘new’, leaner WDC as one with higher growth potential," he wrote.

But Goldman Sachs has a range of $8.67-$8.91 on the stock – a figure that implies a fall from current levels once Westfield Retail is stripped out.

Analyst Simon Wheatley said Westfield Group’s return on equity would be less than forecast, and less than the old Westfield Holdings, and would not be high enough to draw equity investors into the stock.